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Digital Tax Stamp, Lockdown Hurting Beverage Industry

“Through fiscal 2021, the pandemic continued to impact the business negatively across East Africa due to the restrictions in Kenya and Uganda and the general decline in disposable incomes in the region,” EABL CS Maundu says in the statement. “So, we have been struggling with the effects of the lockdown and we now have to struggle with the pressure of paying for something that has no direct benefit to our production processes,” says NBL's Ekomoloit.
06 Aug 2021 06:49
Beer sales struggling due to lockdown


The alcohol industry in Uganda and East Africa continues to report declining business, dispelling the notion that people usually turn to drinking during the lockdown, and that the industry's returns keep increasing.

In March last year, the government of Uganda instituted the first lockdown to fight the spread of COVID-19, and the major victims included bars and entertainment places, tourism and hospitality generally.

While some have partially been allowed to operate, bars and entertainment places remain largely barred, though some operate silently. Another large market for the beverages industry are parties and other festivities or gatherings, but this have also remained either banned or restricted.

The situation worsened in June this year, when another lockdown was announced in Uganda, lasting for more than 50 days.

The region’s largest brewing company, East African Breweries Ltd, which owns Uganda Breweries Ltd, Kenya Breweries Ltd, Tanzania’s Serengeti Breweries Ltd and East African Beverages South Sudan Ltd among others, recorded 15% growth in revenues in the year ended June 2021.

The group recorded total net revenues of 2.8 trillion shillings (86 billion Kenyan shillings) over the year. Despite this growth, the revenues posted still remain less than the pre-COVID-19 performance, which was higher by about 750 billion Ugandan shillings.

The pandemic containment measures in the region contributed to a sharp decline in the sales of all the companies.

In the first year of the pandemic, 2019/2021, business in Uganda suffered most with EABL posting a 14% decline in revenues, while in Kenya they went down by 5%. Tanzania which opted not to impose restrictive measures, saw revenues for the company rise by 14%, in that year.

Now, the brewers were trying to reverse the position when the new waves hit the region.

EABL says its recovery has been hindered by the wider impacts on the pandemic on the economy, apart from low consumption.

“The slower profit growth rate was driven by the impact of cost inflation, adverse foreign exchange impact and tax charges. The company’s performance was delivered on the back of a tough operating environment,” says Kathryne Maundu, the Group Company Secretary.

The restrictions on movement of persons especially in Uganda and Kenya meant that consumption remains low as access to the products is limited, while the there was also low spending capacity by the consumers.

“Through fiscal 2021, the pandemic continued to impact the business negatively across East Africa due to the restrictions in Kenya and Uganda and the general decline in disposable incomes in the region,” Maundu says in the statement.

The company says that to stay in business, they have learnt some lessons from the effects of and measures against the pandemic, and became more innovative. The environment has also led to a rapid change in consumer behavior, including consuming from home and not in social places, preference for some products to others due to costs among other reasons.

With the end of the pandemic not foreseeable, the brewers know that they must adopt to the new environment. “The company responded to the new realities by continuing to invest behind the brands (leveraging changing consumer behaviour and channel shifts), expanding capacity and sustaining productivity initiatives to manage cost base to ensure we emerge stronger. We are cognisant of the fact that the uncertainty posed by the pandemic will continue. However, we are confident that our strategy is working and will continue to focus on business recovery to grow top line and recover margin,” says EABL.

Unlike in Uganda, in Kenya, the restrictions on bars and other social places have been on and off with the last opening of the drinking places coming in May this year. 

This has left Uganda as the perhaps the most affected industry in the three leading economies.

Nile Breweries Limited, one of the leading brewers in Uganda says the business has been continuously affected by the lockdown measures, but that the refusal by the state to free bars and other social places, has made matters worse.

Onapito Ekomoloit, the Legal and Corporate Affairs Director at Nile Breweries Limited/ ABInBev Uganda, says even if there are people drinking, when many are either working from home or not working at all, the industry is affected.

“Drinking is a social activity. Currently there is no social activity. It means people are not drinking. But even when you look at other independent data on the economy, it will show that there is a decline in consumption,” says Ekomoloit.

He says that beer is largely drunk when people have worked. “You, in Uganda, it actually takes eight hours of work for one to earn a beer, and if they are not working, there is no way they can drink. Remember even weekly markets in the rural areas are closed,” he says, adding that that a lack of socialization also impacts people’s consumption levels.

However, Ekomoloit blames the Digital Tax Stamp that was introduced about two years ago, as a worse controversy. “These were meant to ensure compliance in tax but it has brought a cost implication on the beverages because, instead of URA paying for the measure it brought to ensure compliance, it requires the manufacturer to pay for it, yet they pay the taxes,” he says.

He says they have been complaining to the government to give evidence that they were not paying taxes before this system was introduced, but it has no evidence. “So, we have been struggling with the effects of the lockdown and we now have to struggle with the pressure of paying for something that has no direct benefit to our production processes."

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